Financial New Year's Resolutions to Achieve Your 2023 Goals
New Year’s Resolutions are a great start, but come February, they’re passé. So we’re here to help you for all of 2023.
For many of us, 2022 meant a year of revenge travel, playing wedding catch-up, and overpaying for flight tickets, rent, bills, and more. At the same time, we navigated a landscape of company restructures and rising inflation and interest rates, as financial markets tumbled into a bear market.
There’s still a lot of uncertainty ahead, as inflation starts to slow and growth contracts. But the New Year is an opportune time to reassess your finances and get prepared for 2023. So, let’s get started on charting your path to a healthy financial New Year with some solid financial principles that will take you through 2023.
The five principles to financial freedom
Luckily, these five principles don’t change, no matter the state of the economy. But, you can tailor them to your personal circumstances.
Keep a budget
How much you spent on your household in the throes of the pandemic might not look like how much you spent on travel last year. So before setting a budget, it’s worth taking a more recent look at where your money’s going.
Track your expenses over the past few months to set up a budget
Find out how much is going towards your needs, wants, and savings, investments & debt repayments.
|Needs||Wants||Savings, investments, and debt repayments|
|FoodRentUtility bills||EntertainmentRecreationShopping||Emergency fundRetirement fundCredit card billsStudent loan|
This will tell you how much you should budget each month, and you can adjust for any new salary increments or bonuses. Next, see where you can cut back on non-essential spending to increase your savings amount.
Use the 50/30/20 rule to set up a simple budget
While spending a few hours in your budgeting app or spreadsheet is well worth the effort, you might decide that it's easier to go with a simple, proven method: the 50/30/20 rule. Here’s how you could use this rule to split up your income:
- Reserve 50% of your take-home pay for your day-to-day needs
- Reserve 30% for your wants
- Reserve 20% for your savings, investments, and debt repayments
Keep in mind that these proportions only serve as a guide, so be sure to make any adjustments that help you reach your long-term financial goals sooner.
Both methods ensure that you never dip into money you might need for a rainy day or for your eventual retirement!
Take care of your debt
If you’re carrying high-interest debt (think: credit card debt) or if your home loan rates are set to rise, set aside some time to create a payment plan for them.
Pay off your credit card debt
The average credit card interest rate in the UAE has reached 36% p.a. If you only repay the minimum amount on your credit card at the end of each billing cycle, you’ll be working extra hard to pay off the interest, which can snowball quickly.
If you only pay off $500 USD per month on your $6,000 USD balance at 36% interest per annum, it would take you one year and four months to pay off the balance. And you would have paid an additional $1,549.14 USD in interest!
Given how costly credit card debt is, it's critical you pay off any credit card debt as fast as possible, even if it means cutting back on extra spending for a few months and holding back on investing. That's because credit card debt is likely to accumulate interest at a higher rate than any returns from your investments.
Remember, credit cards are only worth their cashback and reward points if you can pay them off in full every month.
Consider refinancing your mortgage
In an environment of rising interest rates, it’s likely that you can expect a raise on your rates after your home loan’s lock-in period. In fact, rates in the UAE are averaging around 4.5% compared to just 2.5% last year. If that lock-in period is ending this year, it might be a good idea to refinance your home loan – you might be able to secure a cheaper home loan from a different lender. Make sure you buffer in about four months to start applying for refinancing. That’ll allow you to explore your options while serving your bank’s notice period, which is typically about three months.
Save up for an emergency fund
An emergency fund is your “get out of jail” card for sticky, unpredictable situations in life. It’s there for you when:
- You have an unexpected hospital bill
- You decide to leave a soul-sucking job, or lose your job
- You need alternative accommodation, and more
How much should I have in my emergency fund?
A good rule of thumb is to save up at least 6 months’ worth of your household expenses. That way, if you or your family hits a curveball, you won’t have to cash out your long-term investments, such as your retirement fund.
Consider adding a buffer to your emergency fund in uncertain circumstances
This year, you might consider adding on an extra month or two of emergency funds. With high inflation starting to cool off, we might be lucky enough to see some of our expenses come down. But interest rates are still high, as are rents in UAE.
If you’re anticipating an interest rate hike on your home loan, or are due to renew your rental lease, it’s worth setting aside sufficient funds as a buffer to cover any further increase in your living expenses. That could buy you enough time to consider other options, such as a home loan restructure, selling your property, or moving into a more affordable rental should you run into any financial difficulties.
Keep your emergency fund in a liquid, low-risk account
If an emergency strikes, you’ll need access to your cash fast. So make sure you don’t lock it into a fixed-term product, even if that product offers high interest rates. Instead, keep your cash in a separate high-interest savings account, or consider an ultra-low-risk cash management portfolio, such as StashAway Simple™. It’s free, and there are no conditions you have to meet to get the projected rate.
Refresh your financial goals
New Year, new you, new goals. If your financial goals were too ambitious and you didn't meet them last year, don't worry – now's the time to review them and get back on track.
With a dedicated savings plan, you can design your life for your near-, mid-, and long-term goals. That may be for an upcoming holiday, a house deposit in two years, or retirement in 30 years.
You can meet each goal with a unique savings and investment plan depending on:
- The time horizon you have to achieve your goal
- The amount of capital needed to achieve your goal
Take lower risk for shorter-term goals (up to 12+ months away)
Such as for your wedding, a holiday, or a down payment.
Save your cash in a low-risk, high-interest savings account, or cash management portfolio. A low-risk portfolio safeguards your cash from any short-term volatility, meaning it won’t suddenly drop in value just when you need to withdraw it.
Here’s one possible cash management solution:
|Projected returns*||4.5% p.a.|
|Risk||Ultra-low risk (It’s never had a single week of negative returns)|
|Recommended holding period||A day, a month, or a year!|
*Based on the current projected returns as of 1 January 2023. View the latest projected returns.
More about Simple: Introducing StashAway Simple™
Take higher risk for longer-term goals (3–5 years away)
Such as for your child’s education, a sabbatical, or retirement.
For long-term goals, investing your money in a diversified investment portfolio allows your capital to benefit from an appropriately higher level of risk and return over a longer period. Depending on your risk level, a diversified portfolio can contain a mixture of investments in different asset classes, like stocks and bonds, across different geographies.
Any interest, dividends, and market returns on your principal amount can be reinvested and compounded over time. These compounded returns start to "snowball" and grow in the long term, helping you reach your goal faster than if you were to leave your savings in cash.
To illustrate, here’s how much of a difference investing could make:
Here are some long-term portfolio options. For any portfolio, you can choose your risk level, and we’ll manage the rest.
|Portfolio||General Investing powered by BlackRock®||General Investing powered by StashAway||Responsible Investing (ESG)|
|Key feature||Our most diversified portfolio yet.||Keeps risk constant while optimising for returns.||Keeps risk constant while optimising for returns. ESG-focused.|
|What to expect||Long-term outperformance, and short-term ups and downs that trend with the markets.||Long-term outperformance, and occasional deviation from how the markets are doing in order to keep your risk level constant.||Long-term outperformance, and occasional deviation from how the markets are doing in order to keep your risk level constant.|
More about investing:
- Introducing General Investing powered by BlackRock
- ESG investing for a more sustainable world
- How to invest during a bear market
Set up a monthly investment plan
If you’ve already started investing, it’s worth keeping your efforts going with a monthly investment plan. Financial markets are volatile, and the best way to combat that volatility and not overexpose your money to any single market condition is to invest regularly, or dollar-cost average.
When you invest every month, sometimes you'll invest when the markets are high, and sometimes when the markets are down. Since the markets have an upward trajectory in the long term, you'll soften the impact of mistiming the market.
Investing regularly also gives your investments time to grow with market appreciation and compounded returns. If you only started investing later or waited to time the market, you’d have to invest more each month to get the same returns.
Here’s a tip: set up an automatic transfer from your bank account to your investment account so you never have to think about investing!
January’s just the start to your long-term financial plan
As it goes, New Year’s Resolutions are a great start, but come February, they’re passé. So we’re here to help you for all of 2023. If you’re just at the start of your financial journey, you’ll need more than January to get you there. So make a plan for the year.
To help you stay committed, we’ve put together a short, 5-part video series with Wall Street Journal bestselling author of Indistractable, Nir Eyal. He shares his best science-backed tips on how to manage distraction and build better financial habits.
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